The Next Narrative — Restaking by Eigenlayer | TKX Weekly

TKX CAPITAL
4 min readFeb 5, 2024

by @uuwagyuu
sponsor TKX CAPITAL

2024’s crypto narrative? Restaking, with EigenLayer leading the charge. This game-changer is redefining staked assets, transforming them into powerhouse tools for boosting DeFi’s capital efficiency and yields like never before. EigenLayer is at the forefront, empowering Ethereum and Liquid Staking Tokens (LST) holders to dive into restaking. This isn’t just about ramping up Ethereum’s decentralized services security; it’s also unlocking new rewards for those in the game, showcasing a new way to leverage staked assets to our advantage.

Intro

EigenLayer introduces a new dimension to the Ethereum ecosystem by allowing stakers to restake their Eth or Liquid Staking Tokens (LST). This adds extra security and the potential for higher rewards across various services. It acts as a crucial link between staking, middleware, and DeFi sectors, making it easier for services to secure their operations and improve their financial strategies. This approach also lowers the entry barriers for emerging projects, eliminating the high costs of setting up their trust networks. EigenLayer matches the needs of LSD providers with those of AVS (like Oracle, Sidechains, Bridges, etc.) and relies on specialized staking service providers to ensure the staking process’s security.

On March 28, 2023, EigenLayer secured $50 million in Series A funding, led by Blockchain Capital, with significant contributions from Coinbase Ventures, Polychain Capital, Bixin Ventures, Hack VC, Electric Capital, and IOSG Ventures. The funding round valued the project at $500 million.

The Problems EigenLayer Aims to Address

EigenLayer aims to address the following pain points:

  1. For various project teams: Reduce the high cost of independently building their own trust networks by directly purchasing staking assets and node operators on the EigenLayer platform, eliminating the need for self-construction.
  2. For Ethereum: Expand the use cases for Ethereum’s LSD (Liquid Staking Derivatives), making ETH a more widely used network security collateral and increasing demand for ETH.
  3. For LSD users: Further enhance the capital efficiency and returns of LSD assets.

Potential Market

EigenLayer has introduced the concept of restaking and offers “cryptoeconomic security as a Service.” Its customer base includes middleware (oracles, bridges, data availability layers) as well as sidechains, application chains, and Rollups. The pain point it aims to address is reducing the decentralized network security costs for these projects compared to building their own trust networks.

Currently, EigenLayer has approximately 270,000 ETH deposited (as per Dune Analytics), whereas the total ETH staked on Ethereum itself amounts to around 29 million ETH (according to Beaconcha.in). With approximately 270,000 ETH deposited, EigenLayer currently represents just around 1% of the total ETH staked. However, considering the potential for EigenLayer to attract even 5% of the staked ETH, which would amount to a 5x growth, it becomes evident that the restaking market has the potential to reach a market size in the billions.

Restaking Ecosystem Projects

  1. ether.fi: A liquidity staking platform with a TVL of $670 million. It offers eETH and weETH tokens and provides auto restaking on EigenLayer. Loyalty points are rewarded to users who stake ETH.
  2. Puffer Finance: A native liquidity restaking protocol with a TVL of $340 million. It allows users to stake ETH, stETH, USDT, and USDC, and offers Puffer and EigenLayer points as rewards. Puffer Finance has also launched the Crunchy Carrot event.
  3. Kelp DAO: A multi-chain liquidity staking platform with a TVL of $292 million. Kelp DAO is building an LRT solution on EigenLayer and has introduced the Kelp Miles incentive program.
  4. Renzo: An Ethereum staking protocol with a TVL of approximately $180 million. Users can earn ETH restaking rewards and 100% EigenLayer points. Renzo completed a $3.2 million seed round in January 2024.
  5. Eigenpie: Offers restaking services for various LST assets with a TVL of $177 million. Eigenpie has introduced a point reward system, and its TVL is steadily growing.
  6. Swell Network: An Ethereum staking protocol that introduced the rswETH token on EigenLayer, with a TVL of approximately $21.33 million. Swell Network provides unlimited access to EigenLayer Restaking points and restaking rewards.

Risk and Challenges

  1. Cost Uncertainty: Determining the cost reduction achieved by procuring collateral assets and validator nodes on EigenLayer is challenging. Economic security relies on the total scale of borrowed LSD assets and validator node quality, potentially offering limited cost savings.
  2. Token Utility Impact: Using assets other than a project’s own tokens as collateral can impact the utility of the project’s tokens, even though EigenLayer supports a mixed collateral model.
  3. Dependency Concerns: Project owners may worry about long-term dependency on EigenLayer, which could potentially limit their flexibility. As projects mature, they may opt to use their own tokens for network security.
  4. LSD Platform Risk: Employing LSD collateral for security involves considering the credit and security risks associated with the LSD platform, introducing an additional layer of risk.

Summary

EigenLayer is reshaping staking with its ‘restaking’ concept. It bolsters security and redefines Ethereum’s narrative. EigenLayer’s role in bridging modules, supporting various consensus protocols, and fostering blockchain ecosystem connectivity positions it as a pivotal player in the industry’s future. Challenges persist but haven’t diminished the anticipation surrounding its significant role within Ethereum.

Reference

https://docs.eigenlayer.xyz/overview/
https://beaconcha.in/charts/staked_ether
https://dune.com/cryptoded/eigenlayer
https://defillama.com/protocols/Liquid Restaking

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